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On January 23, 2025, the SEC issuedÌý (SAB 122), which rescinds the interpretive guidance included in SAB 121.ÌýThis decision comes after extensive feedback from stakeholders, including major banks and cryptocurrency firms, and has significant implications for companies involved in safeguarding digital assets.

ÀÖÓ㣨Leyu£©ÌåÓý¹ÙÍø Hot Topic,ÌýSAB 121 Questions & Answers, discusses SAB 121 in detail.

What does it mean for financial reporting?

Entities will apply SAB 122 on a fully retrospective basis in annual periods beginning after December 15, 2024.ÌýAdditionally, entities have the option to apply SAB 122 in any earlier interim or annual financial statement period included in filings with the SEC after January 30, 2025 (the effective date of SAB 122). On adoption, entities should include clear disclosure about the effects of the accounting changes in accordance with paragraphs 250-10-50-1 â€� 50-3 and IAS 8.

Retrospective application of SAB 122 requires entities to:

• Adjust the financial statements for all prior periods presented to eliminate all amounts recognized due to the application of SAB 121 in those periods. In many cases, this will be limited to eliminating the carrying amounts of recognized safeguarding assets and liabilities because entities have not recognized any actual or potential digital asset losses.
• Recognize an adjustment to the opening balance of retained earnings to the extent there was a difference in the carrying amounts of the safeguarding assets and liabilities as of the beginning of the earliest period presented.

Upon application of SAB 122, an entity that has an obligation to safeguard crypto-assets for others should determine whether to recognize a liability related to the risk of loss under such an obligation, and if so, the measurement of such a liability, by applying the recognition and measurement requirements for liabilities arising from contingencies in ASC 450-20Ìý(loss contingencies)Ìýor IAS37Ìý(provisions, contingent liabilities and contingent assets)Ìýunder US GAAP and IFRS Accounting Standards, respectively.ÌýÌý

Importantly, SAB 122Ìý does not change the requirement for entities holding or otherwise safeguarding digital assets for others to evaluate whether they control those digital assets. In such cases, the entity is deemed the “accounting ownerâ€� of the digital assets and would be required to recognize the digital assets and a liability reflecting its obligation to return those digital assets to their legal owner on its balance sheet. Sections 3.2.60 and 4.3.10 of our Issues in Depth,ÌýAccounting and reporting for crypto intangible assets,Ìýprovide guidance.

Upon adoption of SAB 122, existing requirements to provide disclosures that allow investors to understand an entity’s obligation to safeguard crypto-assets held for others still apply. These requirements include but are not limited to, Items 101, 105, and 303 of Regulation S-K; ASC 450-20;Ìýand ASC 275 (risks and uncertainties).

For more information on accounting for crypto intangible assets, see our Issues in Depth,ÌýAccounting and reporting for crypto intangible assets.